Put on the Brakes | WHAT REALLY HAPPENED


Put on the Brakes

As noted in the previous post, I'm quite convinced that some drastic action needs to be taken to avoid a cascading and debilitating series of crises. But the more I look at this plan, the more wrongheaded it seems. But if I'm understanding this deal, the taxpayers are going to pony up close to a trillion dollars to take bad debts off the hands of financial institutions who were foolish enough to make the deals in the first place. And in exchange, I think the tax payers get nothing? Sebastian Mallaby makes the good point that this is radically different than the S&L Crisis RTC which was liquidating the assets of thrifts that had already gone belly up -- paid the ultimate price, as it were. And as the insurer on the accounts, the government inherited the assets anyway. It was just a matter of selling them off. But here the point is to take these bad debts off these companies' hands so they can go back to being profitable businesses. This is moral hazard on steroids if I'm understanding this right.

Also, according to the Journal, finance industry lobbyists are already giving orders to Republican hill staffers not to allow any meaningful reforms or protections for taxpayers. So, just the money. No strings attached.

...A deal killer for the group: a proposal that would grant bankruptcy judges new powers to lower the principal, interest rate or both on a mortgage as part of a bankruptcy proceeding.

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